Nifty may reach 26,200 by December 2026 as earnings cuts, market risks ease: BofA Securities

BofA Securities has shifted its outlook on Indian equities from cautious to optimistic, projecting a potential 12% upside in the Nifty index to 26,200 by December 2026. After considering eight market risks, five have materialized or been absorbed by markets, while the remaining three could bring a 7% downside, with some pressures expected to subside by October 2026.

Crude oil prices, currently above $100 a barrel, have reversed seven times since the start of the West Asia conflict, with BofA Securities forecasting an average of $81 a barrel in the fourth quarter of 2026. Foreign inflows of $136 billion are expected to stabilize the rupee with an appreciation bias. The Reserve Bank of India is anticipated to raise rates by 25 basis points by December 2026, compared to 45 basis points currently priced in swap markets.

The Federal Reserve is another risk, with BofA Securities expecting 75 basis points of hikes between September and December 2026, against 35 basis points priced by markets. BofA Securities anticipates primary market issuances of $30 billion between September and December, following $36 billion raised year-to-date. High-frequency macro indicators suggest a robust economy, and recent upgrades to macro forecasts and a 230-basis-point cut in consensus FY27 earnings estimates indicate that earnings downgrades may have peaked.

The brokerage now prefers large caps over small and mid-cap stocks due to elevated valuations but retains selective opportunities in the segment, highlighting value stocks and those with strong earnings growth and visibility. AI disruption's potential impact on Indian employment is a structural risk.